Today in Mexico City, Mr. Schultz publicly predicted a global shortage of gourmet coffee beans as worldwide consumption of higher-quality bean stocks is on the rise. But in an act that can only be described as misplaced egotistical chest-beating, Mr. Schultz not only acted irresponsibly by spreading rumors and arguably trying to incite a supply panic, but he also made ridiculous claims about Starbucks’ place in the coffee supply chain.

“At the very top of the market where Starbucks plays, I do not believe that others will have access to the quality of coffee that we are buying because we have secured those sources,” Schultz said.

Yet, for example, no one has ever found anything close to a Cup of Excellence coffee offered at Starbucks. Furthermore, Starbucks’ size and scale — and brand promise of feigned consistency across tens of thousands of retail cafés worldwide — prevent the mega-chain from sourcing their beans from smaller, artisan growers capable of growing the highest quality coffee beans. Instead, Starbucks’ scale requires a lowest-common-denominator approach — where they only deal with growers who can supply coffee beans in large enough quantities to meet their broad distribution needs. Thus Starbucks essentially has the same fast food mega-chain supply problem that McDonald’s has with their potatoes.

Mr. Schultz wouldn’t be the first corporate officer who has lied to the public. But most corporate officers of multi-billion-dollar chains are at least savvy enough to choose lies with some degree of credibility. Lacking this most basic of executive judgment skills, somebody needs to cut off Mr. Schultz from drinking all the company Kool-Aid Frappuccino.UPDATE: Sept. 11, 2007
It’s not just me. From a posting this morning, even the investor community thinks Howard Schultz has a drinking problem and needs help — stating many of the same issues I raised: What Was Starbucks CEO Schultz Thinking? – Seeking Alpha.

3 Responses to “Starbucks chairman sees gourmet coffee shortages”

one thing for sure i don’t think starbucks is the only
coffee shop that provide “excellence coffee”. there’re
some cafes for sure selling better quality coffee that
you can smell its flavors once it’s brewed.

the claim will blind some people.
the only thing i can say is starbrucks does a good job in marketing its image and product. unless you go somewhere to try something else, starbucks fans will (may) stay by starbucks forever.

In most cases SBUX is actually buying its coffee through intermediaries – cooperatives, exporters, importers. In most producing countries (outside of Brasil) there are very few growers who produce enough coffee to have direct relationships with a company SBUX size.

Much of what Schultz is speaking to is actually the threat to the SBUX brand from the small but rapidly growing high end of the market. Small regional roasting companies such as Batdorf & Bronson, Intelligentsia, Stumptown, Allegro, Counter Culture, and relative powerhouses like Peets are redefining public perception of coffee, offering superior freshness, artisan roasting, and higher prices to coffee growers through direct relationships resulting in vastly superior green stocks. As these companies mature, their marketing efforts are increasingly about distinguishing themselves from SBUX. The popular culinary culture via magazines, television shows, and numerous internet communities has begun to take notice of Specialty Coffee and SBUX has been attempting recently to play catch up (with limited success) appealing directly to this large niche through several new programs (black apron, “coffee is culinary”, etc.).

It is a strange bit of vanity that has Schultz looking over his shoulder at much smaller companies who are unlikely to have a very direct impact on SBUX unstoppable growth or bottom line, but do present a threat to his cherished fallacy that SBUX represents any vanguard of quality.

He is perhaps also beginning to recognize that SBUX reliance on outsourced expertise at origin has provided an advantage to upstart companies that utilize these same cooperatives, mills, exporters, and importers to secure much more premium green coffees at prices higher than SBUX can bear to pay. His statements likely acknowledge the challenges that SBUX faces in maintaining quality while attempting to fill incredibly large contracts (often filled late by coyotes), and having increasingly limited recourse to rejecting poor quality shipments.

Investors may lack Schultz’s sensitivity to his brand losing its last pixels of gourmet shine, but they are aware of SBUX uncanny price to earnings ratio and the potential that any bad news or ounce of panic could knock the stock price back into the atmosphere. Does the green giant have a strategy to keep wind in the sails as the dollar drops, consumer spending falls, low brow competitors hit them with price pressure, and/or we slide into a near recession from the collapse of the housing market and increased oil prices? Doubtful. Fortunately for Howard, investors aren’t that rational.

In light of your post, this casts a slightly different light on Mr. Schultz — at least for me. His reaction (and his prior reactions, such as this year’s infamous Valentine’s Day memo) suggests a founder who is desperately trying to hold on to some notion of elitist quality and romanticism. Meanwhile, the money keeps rolling in, the company’s leadership is characterized more by capitalists than connoisseurs, and the Starbucks brand becomes ever more pedestrian and mainstream … like McDonald’s. (But still a business juggernaut nonetheless.)

He’s like *both* Pilaggi brothers — from the movie, “The Big Night” — rolled into one: pleased with his uncanny business success (Secondo), but seemingly a bit resentful and perhaps even holding some self-loathing for how he had to sacrifice his artistic sensibilities along the way (Primo).